October 1, 2013

The U.S. Army Corps of Engineers (USACE) is looking to move forward with a costly levee system to protect a floodway in southern Missouri. The project is at the expense of much-needed maintenance to existing systems across the state.

In July, the USACE released its latest draft environmental impact statement for the St. Johns Bayou and New Madrid Floodway project. A major component of this $164 million project is to close a 1,500-foot gap at the southern edge of the New Madrid Floodway with a new levee. USACE claims that this project will protect agricultural land in the New Madrid Floodway from yearly back-flooding with a benefit-to-cost ratio of 2:1.

However, experts and other government departments claim that the environmental impact statement, the seventh proposing this levee since Congress approved the project in 1954, underestimates both construction expenses and other externalities. The USACE is well-known for construction cost overruns, exemplified by a lock and dam project on the Ohio River. Although the money already spent on that project is almost five times the original budget, it remains incomplete.

The Corps is also likely underestimating ecological damage to the Mississippi River. As it closes off the last area in Missouri where the Mississippi has access to flooding areas, the proposed levee is likely to damage the Mississippi River’s ecology, including its fish stock and bird species. The U.S. Department of the Interior states that USACE’s plans for mitigation:

…lack scientific validation, are logistically infeasible, and inadequate both in kind…and amount.

A new levee endangers not only fish and fowl, but also Missouri residents. As the U.S. General Accounting Office (GAO) stated in 1995, “That levees increase flood levels is subject to little disagreement.” The back-flooding into the New Madrid Floodway relieves pressure from levees upstream in Missouri. Shutting off this escape route increases the danger of levee failure at other places along the river.

While the Corps plans a new levee system with ominous consequences, Missouri’s existing levees remain in a state of disrepair. Of the 133 rated levees in USACE’s registered system for Missouri, only 5 percent are fully acceptable for a 100-year flood (1 percent chance in any given year). Ninety percent are “minimally acceptable” (have one or more areas that endanger the structure) and an additional 5 percent are “unacceptable” (not rated to perform up to standard in the next flood). That $164 million might be better spent maintaining the system that already exists rather than protecting a floodway.

May 9, 2013

Last year, at the height of the drought in Missouri, I wrote about Missouri Gov. Jay Nixon’s Executive Order authorizing government assistance for water sharing and distribution to farmers affected by the drought. I argued that the government should not be spending public money to assist those who already have (publicly subsidized) crop insurance.

Fast forward to today. One might think that due to the drought, farm incomes would be seriously hurt. However, that is not what happened. According to a recent survey (hat tip: St. Louis Post-Dispatch) that the St. Louis Federal Reserve released, farm income for the last quarter of 2012 was either on pace to match that of the previous year or even increase. A Kansas City Federal Reserve report had similar findings. The reason incomes did not fall: “Many bankers cited the effect of crop insurance in alleviating the expected negative impact of the drought.”

So, these farmers did not really need all that extra help last year. Their insurance was enough to cover their losses. I am glad that was the case. However, if many farmers are making more money after the drought than before it hit, couldn’t they afford to pay a bit more for their insurance premiums? Currently, taxpayers heavily subsidize crop insurance premiums.

I am not advocating eliminating crop insurance. However, cutting back on public support for crop insurance is a good idea. According to one Government Accountability Office report, a 10 percent reduction in government subsidies would have saved the taxpayers $1.2 billion in 2011. Buying insurance is meant to help prevent catastrophic losses, it is not meant to make you money. The government should reduce its commitment to paying for insurance subsidies; it seems the farmers can afford it.

August 9, 2012

Missouri has been dealing with some harsh weather conditions. Drought conditions in some parts of the state are “exceptional.” Needless to say, the impact on the state’s livestock and crops has been quite detrimental. Thus, it should come as no surprise to anybody that the United States Department of Agriculture (USDA) declared the entire state of Missouri a disaster area.

” . . . authorize the State Soil and Water Districts Commission to implement an emergency cost share program for water source development and/or water distribution practices to assist landowners engaged in livestock or crop production adversely impacted by the current drought.”

I am no fan of government handouts to agriculture. While this particular program does not strike me as an egregious waste of public money, I am still inclined to think that it is a bad idea. Droughts harm farmers by reducing their income, and harm consumers by reducing the available food, which increases prices. Farmers’ crops should be — and are — insured, however, with federally subsidized crop insurance (which has its own issues). Thus, losses suffered due to this drought can be mitigated. International free trade would allow providers worldwide to supply demanded goods to consumers at the lowest possible price. Government barriers need to be removed. Impediments to more effective water pricing should also be changed.

Water sources need to be developed and the governor’s order is an attempt to do so, but I have yet to see a reason why these sources cannot be developed privately. If there is a law preventing private water development, get rid of the law. If the private sector cannot do it economically, then why should non-farmer taxpayers subsidize a government project that cannot be justified economically?

December 6, 2011

During this time of year, no one wants to say “Bah, Humbug!” However, I would be remiss if I did not mention that the state might run into a revenue shortfall (between $400 million and $600 million) next year. That can be troublesome, but it also presents an opportunity for the state to reexamine some of its questionable spending decisions. In previous posts, I have listed someareaswhere the state should reconsider spending money. However, for now, I will focus on the state’s support of the Missouri Agricultural and Small Business Development Authority.

The mission of MASBDA is to make “capital available to Missouri farmers, particularly independent producers; agribusiness; and small business at competitive interest rates on a scale to make a major impact.” This raises a red flag for me. An entity that makes capital available to businesses at a “competitive” interest rate sounds an awful lot like a bank to me. In fact, a couple of the programs that the MASBDA administers include: Missouri Agribusiness Revolving Loan Fund, Alternative Loan Program, and Animal Waste Treatment Loan Program. The total state funds loaned to the Animal Waste Treatment Loan Program alone is close to $500,000 ($485,333.56 for fiscal year 2011, specifically).

Is anybody uncomfortable that a part of state government is acting like a bank? Why can’t the recipients of these loans get private financing? If they are great deals, why are private banks and/or financial institutions not jumping at the chance to invest in these projects? Farms already face lower property tax burdens compared to commercial businesses (farm property has an assessment ration of 12 percent compared to commercial at 32 percent and residential at 19 percent, and the soil quality grading system sets a very low appraised value already) so why do they need ADDITIONAL help with subsidized loans?

Also, how can a government and a private enterprise compete when it comes to financing? By issuing below market interest rates to different businesses, isn’t the state undercutting private financial institutions? Even if a state department/agency/program loses money, it can acquire new financing by compulsion with increased taxes. A private organization does not have that same power to tax (although with TDDs and CIDs, we are getting there). Thus, with the ability to achieve easier financing, what real incentive is there for the state to make wise spending decisions when it comes to these loans besides avoiding grief from dedicated bloggers such as me? Isn’t it time for the state to get out of the business of lending with YOUR money and return to the basics? Just some food for thought.

Newly tabulated information from the Environmental Working Group, which is critical of U.S. farm policy, shows that absentee landowners and investors receive subsidies that, in the public’s mind, go to struggling family farms. The U.S. Department of Agriculture last year sent nearly $100 million to cities with more than 500,000 residents.

Not very farmy communities in this area got in on the action. In Kansas City, Missouri, 1,611 recipients collected nearly $5 million in 2010. The city’s boundaries reach into four counties, so it stands to reason that the receivers include people who drive actual tractors and combines for a living. But zip code searches indicate that the subsidies are also being mailed to downtown addresses and people who live around the Plaza.

A little back of the envelope math tells us that each Kansas City recipient received just more than $3,100 on average. As The Pitch notes, many checks are probably supporting genuine family farmers, given the expansiveness of KC’s municipal boundaries. But on the Plaza? Not likely. Pick the right high-rise apartment and telescope, and maybe urban farmers can see their fields being tilled from afar. Is that the kind of situation legislators contemplated when they crafted the law that created the subsidies?

June 23, 2011

Brazil: A land entailing natural wonders, a powerhouse economy, and sugar cane ethanol? Yes, that’s right. Ranked second in terms of production and first for exporting, Brazil has long been a pivotal mover and shaker in the global ethanol industry.

Together with the United States, Brazil produces nearly 88 percent of the world’s ethanol supply. However, Brazil uses sugar cane as a preferred alternative to corn in its ethanol production.

With an annual yield of nearly 370 million bushels of corn, many Missourians are deeply connected to the corn-based ethanol industry. If the industry were to dry up, thousands stand to suffer in the short run. Even so, could there be a sweeter alternative?

Well, quite literally, yes. The Brazilian sugar cane industry is said to be seven times more efficient than that of the United States, and less expensive, too — nearly 30 percent cheaper, in fact. Regardless, it appears that the federal government has little interest in the more viable Brazilian blend.

Current and past administrations have vowed to reduce foreign oil imports, claiming that we have become too dependent on them. So, why a virtual ban on Brazilian imports? If ethanol is federally promoted as a solution to the so-called national security issue of dependence on Middle Eastern oil, why wouldn’t cheap, clean-burning ethanol from friendly Brazil be satisfactory? If officials are serious in addressing this as a national security issue, they would invest in other forms of energy — namely, those which are not harmful to our country’s environment and well-being.

Thankfully, it appears that lawmakers might be making a move in a better direction. Last week, Sen. Tom Coburn (R-Okla.) fathered an amendment that would slash government subsidies of the corn industry while also lifting the tariff. Unfortunately, Coburn’s amendments may never become actual laws. Nonetheless, the Senate has shown an ever-increasing readiness to bring ethanol subsidies to the curb.

So, is investing in the precarious, ever-expanding corn-based ethanol industry worth the higher food prices, loss of necessary agricultural groundwater, and increased pollution that result? Well, some would argue that the aforementioned are a small price to pay to support an industry. I contend the contrary. Surrounding Missouri’s ethanol industry, we have corn farmers benefiting from subsidies, cattle farmers suffering from feed shortages, and mandates that often require we burn at least 10 percent less-fuel-efficient ethanol in our cars.

When subsidies are involved, benefits for some lead to costs for others. So, who’s right? You be the judge.

June 8, 2011

My father founded and ran several area gas stations until his death. At first, he embraced the use of oil and gas mandates like those that regulate the ethanol industry — he saw ethanol as a possible revenue stream. However, optimism dwindled as each fall’s harvest brought bushels of despair, not what others had promised. He would one day realize the strife that comes with perverse government regulations.

Many have regarded ethanol to be the proverbial “fuel of the future,” claiming that it reduces the cost of gasoline at the pump while also emitting less pollution. Although ethanol can replace gasoline in some ways, it is less beneficial than many expect.

Despite the abundance of new testimonies and information, however, both the federal and state government continue to support ethanol ardently, as our country’s energy messiah.

Pointing to often-circulated claims of environmental friendliness and cost-effectiveness, Rep. John Shimkus from Illinois recently introduced new legislation that would impose further government mandates for the production of ethanol. Amid another distressing year for Detroit, this governmental decree would require that 50 percent of all new automobiles be capable of running on ethanol and other non-petroleum fuels by 2014. That number would stiffly rise to 95 percent just three years later.

First, it has been shown that increases in ethanol production are correlated with an increase in food prices. These effects can be felt not only statewide, but also nationally and internationally.

Second, and as a direct result of government mandates, a cloud of pseudo–market demand now hangs heavily above the heartland. Simply put, the current supply/demand ratio did not arise naturally from the decisions of producers and consumers, interacting voluntarily in the market. Instead, the ethanol industry is artificially bolstered by government sanctions.

Finally, both this mandate and others like it point to the essence of how government controls harm the economy. There are too many hands in the cookie jar, and, as a result, everyone’s hand gets stuck; the cookie crumbles. Automakers should not be burdened with absurd requirements such as this from legislators who seek to alter the free market for the sole benefit of their constituents, and at the expense of everyone else.

Don’t get me wrong, I support the development of renewable energies and green solutions. Markets reward efficiency. However, as both a Missouri resident and an owner of my father’s businesses, I find that legislation like our own E-10 mandate and the proposal advanced by Rep. Shimkus in Illinois are harmful — especially in the long run.

Neither supply nor demand would exist at anywhere near current levels without both federal and state mandates, both of which have propelled ethanol into the forefront of the American auto and oil industries. As it stands, the eagerly pushed supply of ethanol more than satisfies current market demand. And that, folks, is just basic economic principle.

February 28, 2011

Kansas City’s Pitch has a detailed account of a legislative town hall forum in northern Missouri regarding the issue of corporate hog farms. Sen. Brad Lager has introduced a bill limiting the liability of these types of large-scale hog farms, one of which is planned for his district. Many of his constituents near the proposed hog farm (aka, confined animal feeding operation, or CAFO) are opposed both to the legislation and to the hog farm itself. Right off the bat, I am going to admit that I don’t really know where I stand on this particular issue.

We have debated the important issues of corporate farms, local land-use controls, and tort reform here at Show-Me Daily before. My own views favor general tort reform (as passed in Missouri in 2005), and the power of local communities to pass zoning regulations (although I would be perfectly happy to live somewhere without zoning), but generally oppose special laws. In this case, those special laws could be seen as either tort limitations or land-use contraints involving only large-scale animal farming operations.

The theoretical free-market solution here does not involve either zoning restictions or tort limitations. On the other hand, the practical solution probably does not involve them, either. If an area does not have zoning, or is zoned for industrial uses, a CAFO should be able to open. If that CAFO then harms its neighbors, its owners should be held responsible under the same civil litigation rules that all businesses face. Regular readers know that I generally favor practical solutions over theoretical ones, but it’s nice when they fit together.

It may seem that I have arrived at a conclusion despite my initial statement that I don’t know where I stand. Not really, though — this is a very tricky issue, and I’d love to read comments from people with firsthand knowledge of these cases. I don’t want to see businesses driven from Missouri by nuisance lawsuits, but, from what I have read, I don’t see these lawsuits as petty or improper. I think this was one of the best points in the article:

A grad student pointed out — correctly — that the innovations in odor-reducing technology are the direct result of litigation. Companies like Smithfield didn’t start spending money to reduce the stench of tens of thousands of hogs and their waste until the threat of legal action provided incentive to do so [...].

If the company in question is improving its production process, it won’t be nearly as affected by the lawsuits in the future. That is something we can all root for.

January 28, 2011

This post on competing sales tax rates at sandwich shops in the Central West End has not had the results I had hoped for. (I don’t really know which results I hoped for, just not this one.) Panera The St. Louis Bread Company on the Forest Park Parkway near Euclid has apparently raised its sales taxes. In the last post, two months ago, it had by far the lowest rate in the area. On a recent trip there to get some coffee, superstar intern Tom Duda saw that the tax has been increased dramatically. A tax that had been below 6 percent is now more than 10 percent. At least 1.5 percent of that can be attributed to an application of the sit-down restaurant tax, but I don’t know where the rest comes in. (Both visits measured were “to go,” to keep it clean and simple.)

Needless to say, Show-Me Daily is not exactly proud to have potentially contributed to a tax increase.

January 18, 2011

Some aldermen in Chicago are objecting to the bids coming in to operate the city’s famous “Taste of Chicago” event. In a prior blog post, we discussed the proposal by the city of Chicago to privatize its famous festival. Until this year, Chicago has used tax dollars to fund its food festival, just as the city of Clayton has used tax dollars to pay for part of its prior “Taste of Clayton” events. In all honesty, it is hard to think of anything that governments fund that should be more obviously left to the private sector than food festivals.

The Chiacgo aldermatic objections to the privatization bid center on the private operator’s proposed plan to charge an admission fee and (gasp!) sell tickets to the accompanying concerts. Chicago has been a leader in privatizing public services, and you might think that a major food festival should be an obvious choice once you have privatized a highway, parking meters, and (almost) an airport. But apparently some alderman are drawing the line at food and music festivals:

“Is there a cap? What contract are we signing? Is it gonna be another thing where they can increase the rates every year?” [Ald. George] Cardenas said, referring to the deal that privatized Chicago parking meters. “It’s a tragedy that we have to be in this situation where people can’t even enjoy their own city, enjoy their own lakefront. They have to pay for it.”

By “enjoy their own city, enjoy their own lakefront,” he does not mean taking an evening stroll along the beach. Rather, he’s suggesting that attending an enormous food festival with booths, bands, security, sanitary facilities, promotional marketing, street and parking adjustments, and scores of other necesities that all cost money … that should all be free of charge to the people who attend, until they actually buy something. (I will give the alderman the benefit of the doubt that he does not think even the food should be free.)

This relates to issues in Missouri. The city of Clayton recently attempted to pass a hotel tax increase that would have been partly used to fund the Taste of Clayton. Instead of trying to fund Taste of Clayton with tax dollars, Clayton should allow restaurants (or any private operator) to host it themselves, and charge the private actor for any extra costs incurred by the city, or not host it at all. A food festival is something that private organizations can provide, and is not a core function of local government.

I hope that Clayton follows Chicago’s example and bids out the entire management and operation of the “Taste of Clayton” to private operators, without any taxpayer support.

On Wednesday, Nixon announced that a trade mission planned for Dec. 10-16 was expected to produce a letter of intent with Taiwanese businesses that will agree to buy Missouri corn, soybeans and other products during the next five years.

At a rate of about $120 million of exports a year, the new agreement would outpace the $69.1 million worth of exports Missouri sent to Taiwan in 2009.

The governor is traveling to Taiwan with the intention that it will influence their government’s public policy decisions. My fingers are crossed that the direction of this knowledge transfer will be in the reverse. Policymakers in Missouri can learn much from Taiwan.

Hopefully, this trip will serve as an opportunity to learn that Taiwan has developed rapidly and meets the needs of its citizens well because it enforces public policies that embrace the free market. If the state government in Missouri were to remove itself from arbitrarily picking winners and losers in the market, the economy would achieve a greater rate of growth. As I have commented before, centrally planned economies have not worked historically, and there is little reason to believe that they will work any differently in Missouri.

I encourage the governor to watch Free to Choose, a multipart PBS television series by Milton and Rose Friedman from the early 1980s that communicates how the economy benefits from free-market principles. Perhaps it would make for good viewing on the flight to Taiwan. (And he might be further interested to know that Arnold Schwarzenegger, a governor from another mother, provides a commentary to the updated 1990 version of the series.)

The first episode, in which Dr. Friedman visits Hong Kong, is particularly relevant to this trip to Taiwan. Friedman explains that Hong Kong has experienced success because it has established basic economic policies that are rooted in free market principles — principles that would benefit Missouri as well. From Friedman’s narrative:

This thriving, bustling, dynamic city, has been made possible by the free market — indeed the freest market in the world. The free market enables people to go into any industry that they want; to trade with whomever they want; to buy in the cheapest market around the world; to sell in the dearest around the world. But most important of all, if they fail, they bear the cost. If they succeed, they get the benefit and it’s that atmosphere of incentive that has induced them to work, to adjust, to save, to produce a miracle. This miracle hasn’t been achieved by government action — by someone sitting in one of those tall buildings and telling people what to do. It’s been achieved by allowing the market to work. Walk down any street in Hong Kong and you will see the impersonal forces of the market in operation.

By increasing American imports to countries like Taiwan, China, and India, the rising living standards in those regions will continue, and this will lead to the demand for more American goods. This change does not require the lead of the government, however. It happens spontaneously and incrementally in unrestricted markets. Missouri could achieve a higher annual rate of growth if it stopped subsidizing and protecting favored industries and instead let the free market work.

November 24, 2010

A couple of weeks ago, I embarked on an audacious experiment. I dreamed an impossible dream that one day, if God were willing and the creek didn’t rise, I could eat at all the delis and sub shops around the Central West End of St. Louis and compare the varying sales tax rates that result from CIDs, TDDs, CBDs, etc. People told me this dream was impossible: the local government sales tax version of the British Navy’s quest for the Northwest Passage. I did not listen to the naysayers. I knew that if I had the dedication and commitment, I could both eat sub sandwiches and — this is where it gets tricky — remember to keep the receipts. Like a bird over the ocean that indicated to a nervous sailor that land was near, this blog post tells you that my impossible dream has become a reality.

My experiment led to two major findings: 1) Wow, there are a lot of sub shops on Euclid; and, 2) criminy, some of these sales taxes are high! I think most people would be surprised to find out that the sales taxes charged by different restaurants in the Central West End varied by as much as 5 percent. That’s 50 cents on a $10 lunch order for restaurants located only a block apart. (Everything I got was “to go,” but it is a good question whether I should be charged the additional extra sales tax on “sit-down restaurants” in the city. Nor should it involve Missouri’s reduced sales tax on food, which does not apply to restaurants.)

The sales tax rates vary from 10.99 percent to less than 6 percent. (Please note that because of rounding, you can’t be sure in some examples whether the tax is 10 percent or 9.99 percent.) When you go to the Jimmy John’s or Planet Sub on Euclid, you pay multiple additional sales taxes that help fund the development districted in which they are located. In this case, it is the Euclid Buckingham Transportation Development District (at least). That leads to a high sales tax of 10.99 percent. If you go across the street to Pickles Deli, you pay 1 percent less. You save a tiny bit more if you go to either of the Subways in the area; both charged 72 cents on a $7.25 bill, or 9.99 percent. (Again, rounding could also make it 9.98 percent or so. I wish they listed the exact rate on the bill, like Starbucks and Jimmy John’s do.)

The Starbucks on Maryland also charges the 10.99-percent sales tax, with a 32-cent tax on a $2.90 bill. Here we see some unfortunate weaknesses in the data. Because Community Improvement Districts, Neighborhood Improvement Districts, etc. can have generic names, you can’t always tell which one a particular address might be located in. The GEO St. Louis parcel address datadoes list the TIF district that might apply to a property, but it does not list CIDs, etc. Finally, the state TDD listdoes not list individual properties.

The real shocker, though, is the St. Louis Bread Company on the Forest Park Parkway. (Ignore the word “Panera” on the receipt.) The sales tax there is less than 6 percent! How the heck can restaurants one block apart have a tax difference of 5 percent? The answer is that, somehow, this particular Bread Company has not been included in any of the special taxing districts that add an additional sales tax. (It is most likely the beneficiary of some type of property tax incentive, but property taxes are not the point of this post.) It might be the only restaurant in the CWE that is outside of any special business districts, and not in any CID, TDD, etc. (Here is a good new city database on these issues.) The big question, though, is whether or not some restaurants are improperly charging — or improperly not charging — the extra sit-downsales tax rate of 1.5 percent. (Read section 92.325 of the state statutes for the pertinent laws.)

While I will remain a fan of Jimmy John’s and Planet Sub (especially on $2.50 Turkey Sub Thursdays), the realization that I am voluntarily giving 5 percent more to the government just because I go there will probably have me patronizing the Bread Co. more often. Then again, perhaps this blog post will have the unfortunate effect of leading to the Bread Company collecting the extra restaurant sales tax like the other places appear to do.